Can The Size Of Your Business Affect Sme Loan Rates?

As a business owner, one would aim to ensure that one’s business is financially stable or get the required financial assistance to ensure its success. Amongst the different options to ensure this stability, one can always opt for an SME loan. However, when applying for any of the SME loans, the lender will take into consideration several factors before processing the application. One of these options includes the size of the business.

No doubt, a small sized business may seem not to get the better end of a loan bargain. On the contrary, lenders will check how well the business is functioning before reviewing or verifying the loan application. Given below are details of how the size of one’s business can affect the loan rates in one’s application.

Monthly revenue: Most business begin in the red. In other words, they may not earn a profit maybe for the next two to three years, depending on their business profile. However, if one applies for any SME loans within this duration, the loan rates will be based on the current income that is generated. However, generating a certain amount of revenue may not necessarily mean that one will get funds. In this case, the average daily balance of one’s business bank account will determine how much funds a lender can actually be provided, over a period of time.

Tenure of functioning: Most businesses naturally expand over a certain period of time. This is normally done to match the demands of the business, or to increase the supply of the business. While either factor is applicable, it still influences the tenure of the business. For example, a business that has a functioning of over 5 years, with considerable expansion in that duration indicates a profitable future, as compared to a start – up of 2 years. From a lender’s perspective, this is one of the many factors considered when verifying the loan application. The lender, in turn, will determine whether one’s business will have the capacity to further expand and determine whether they match the demands of the SME loan rates.

Collateral provided: As a part of the SME loans, one would be required to provide collateral. This is crucial as this loan comes under the category of secured loans. In this case, the collateral here will be the business itself. This is where the size of the business will determine the collateral value. If the value of the business is insufficient, one would be required to submit an additional collateral value to match the demands of the loan. In this case, one would be required to submit a deposit, investment in real estate properties or even any equipment.

Author Bio :

The author is a seasoned writer on finance topics and he articulates aspects that are important to people availing the SME loans facility. He writes about a variety of topics covering the home loan documents, rates & business loans that help to make the best decision.